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Game theory

When applied to economics, game theory attempts to explain the behaviour of interdependent firms operating under conditions of
uncertainty. A game has three elements - players, pay-offs and
strategies - all of which exist in real markets and market
interaction. Game theory can be used successfully to help
generate a better understanding of how and why decisions are
made by
oligopolists in pursuit of their objectives - such as
whether to compete or collude, or raise price or lower price.
Game theory can also be used by regulators to help decide
whether to
regulate, and to assess the likely effect of fines or
penalties on the behaviour of firms.